2nd Circuit Upholds Insider Trading Ban

(CN) – The former business-development director of Takeda Pharmaceuticals International was properly barred from being a director of another public company for a decade after being charged with insider trading, the 2nd Circuit ruled. In February 2012, the Securities and Exchange Commission charged Brent Bankosky with insider trading between 2008 and 2011, which he neither admitted nor denied. “Through his work, Bankosky obtained material, nonpublic information (‘inside information’) in advance of: (1) the March 31, 2008 post-close announcement that Takeda had formed a strategic alliance with Cell Genesys, Inc. (‘Cell Genesys’); and (2) the April 10, 2008 announcement that Takeda had agreed to acquire Millennium Pharmaceuticals, Inc. (‘Millennium’) through a cash tender offer,” the complaint states. “Bankosky then breached his duty to his employer and its shareholders by using this inside information to trade in his personal account and purchase out-of-the-money call options in the securities of Cell Genesys and Millennium. Through these trades, Bankosky reaped over $63,000 in profits on an initial investment of $37,500, achieving a 169% rate of return.” The SEC and Bankosky entered into a consent agreement, and shortly after, the commission moved to permanently ban Bankosky from being an officer or director of a public company. A district judge in Manhattan found Bankosky was “unfit” to serve as an officer or a director of a public company and barred him from being one for ten years. In his opinion, Judge Harold Baer noted that Bankosky was not a repeated offender, though his actions were “undeniably serious and not isolated.” Bankosky appealed from the post-judgment opinion. Last week a three-judge panel of the 2nd Circuit affirmed the district court’s decision in a per curiam opinion, finding the court properly balanced the factors for barring Bankosky under current case law. “Apart from the district court’s findings, we are also troubled by the fact that Bankosky was buying call options in shares of Millennium Pharmaceuticals, Inc., a company that his employer was in negotiations to acquire,” the panel wrote. “The call option purchases could have increased trading demand for the target company’s shares and share price, making the acquisition bid more costly or even pricing a deal beyond reach. This conduct betrays an impulse to place self-interest ahead of his employer’s and its shareholders’ interests and further demonstrates unfitness to serve as a corporate fiduciary.”